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TO SELL OR STORE HAY? THAT IS THE QUESTION!
Alfalfa
producers must decide annually whether to store hay or sell it from the field. The
following table should help producers make informed marketing decisions. I have assumed
10% interest on money, a 10% shrink on hay, and a $5.00 per bale charge for getting big
square bales in and out of the barn. Based on these assumptions, the break-even price for
$110 hay in the field, 6 months from now, is $132/ton. The majority of the cost associated
with storage occurs early in the storage period due to shrink and cost of hauling. After
theses costs have occurred, the interest cost is the only cost that increases.
There was no charge for the cost of the hay
barn included. Also, there was no charge for insurance on the hay. Insurance is a cost
producers would need to add to the costs shown in the table.
Break-Even Hay Prices Required To Cover
Assumed Storage Costs1
|
Hay
Price in the Field July($/ton) |
Storage
Period |
| 2 Months |
4 Months |
5 Months |
6 Months |
9 Months |
|
| 80 |
$94.88 |
$96.22 |
$96.88 |
$97.55 |
$99.55 |
| 90 |
106.05 |
107.55 |
108.30 |
109.05 |
111.30 |
| 100 |
117.22 |
118.88 |
119.72 |
120.55 |
123.05 |
| 110 |
128.38 |
130.22 |
131.13 |
132.05 |
134.80 |
| 120 |
139.55 |
141.55 |
142.55 |
143.55 |
146.55 |
| 130 |
150.72 |
152.88 |
153.97 |
155.05 |
158.30 |
| 1Includes 10% shrink, 10% interest
on money and $5 per bale loading, hauling, unloading |
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Hay prices tend to be seasonal. HAYMARKET data indicates that
prices for hay are above the yearly average from October through April. December prices
are normally 14% above the annual average price, and January and February prices are 11%
and 12% higher, respectively.
The seasonal low price occurs in May. May has averaged 12%
below the yearly average price. June, July and August averaged 9%, 6% and 4% below the
yearly average price, respectively.
In a normal year as seasonal hay prices are concerned,
then we would normally expect a 20% increase in price from July to December. With $110/ton
hay in July, this would indicate a $132 price in December. The break-even storage price
for $110 per ton hay for 6 months is $132.05.
This indicates that if we get a normal season price
increase in hay, the result is basically the same for selling or storage. The major
difference is that the hay producer stands all of the price risk. If hay goes up more than
normal, the producer will be rewarded for taking the risk with higher prices; however, if
prices do not increase the normal amount, then the producer would have been better off by
selling hay in the field today.
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